We have received your letter of March 3, 1986 in which you requested relief from the Iowa statute which requires you to pay Iowa income tax on your retirement pay from military service. It is the position of the Department that there is no exemption from Iowa income tax of military retirement pay. Therefore we cannot grant you the relief you requested in your letter. Your letter mentioned a number of pensions and annuities that were exempt from Iowa income tax. In the case of Iowa Public Employees' Retirement Benefits, Iowa Police and Firemens' Retirement Benefits, Peace Officers' Retirement Benefits and Iowa Judicial Retirement Benefits (received on or after July 1, 1985) there are specific provisions in the Iowa Code which exempt these retirement benefits from Iowa income tax. In the case of Railroad Retirement benefits, there is a section in the federal statute which authorizes the benefits, that provides that the states can not tax railroad retirement benefits. The Civil Service annuity exclusion was first applicable for tax years beginning in 1977. It is my understanding that the exclusion was granted because without the exclusion, all the retirement benefits of civil service annuitants were subject to Iowa income tax, since these individuals did not receive nontaxable social security benefits. Please note that in the case of civil service annuitants who receive both civil service annuity benefits and social security benefits, the exclusion of civil service annuity benefits is reduced to the extent that social security benefits were received. The Department's position that there is no exemption from Iowa income tax of military retirement pay is supported by Public Law 98-525 which was enacted by Congress in October 1984. This law authorizes voluntary withholding of state income taxes from military retirement pay. It does not seem likely that this law would have been enacted if Congress did not consider military retirement pay as being subject to state income tax. Enclosed is a copy of a page from a tax publication which includes information on P.L. 98-525. The Department has entered into an agreement with the Department of Defense so that the voluntary withholding of Iowa income tax can be made from military retirement pay of Iowa residents. Sincerely, James D. Hamilton Tax Specialist, Policy Section Technical Services Division